Education construction spending upturn a sign of things to come

February 01, 2005 |

By Jim Haughey, Reed Business Information Economist

Construction spending for education facilities has been stalled for 18 months, although there was a 2.2% jump in November. Tentatively, this is the beginning of a return to 10% market expansion in 2005–06 after two years of slim 2.5% to 3.0% growth, which did not quite keeping up with inflation.

Spending on accessory facilities, such as libraries, museums, and administration buildings, declined 7% in 2004. College dormitory projects increased 20% last year. Construction of instructional facilities at all levels about kept pace with inflation last year.

The demand for new or renovated education space depends on enrollment over the long term, but depends on cash on hand in the short term (up to three years). The cash comes from tuition, taxes, investment income, and donations. Each of these funding sources collapsed in the aftermath of the 2000–01 recession, but began a strong recovery early last year.

This turnabout will fuel a strong market expansion at least into 2007, after the usual lag for public and non-profit decision making and facility planning.

While the jump in education construction spending in November 2004 seems a bit early and may not persist in early 2005, the outlook is for an improving market no later than spring. State tax collection increased an estimated 10% in 2004. About a 7% gain is expected in 2005, pushing tax receipts nearly 30% higher than at the bottom of the recession. The steadier receipts from local property taxes have also been rising for more than year, although more slowly.